I am Nobuya Kato, Chief Financial Officer of the JT Group. Thank you for joining us today for JT Group's 2023 first quarter earnings briefing. Before detailing each businesses, let me explain the 3 months consolidated financial results. Please refer to slide 3. Adjusted operating profit at constant currency. Our primary performance indicator increased 5.1% year-on-year, representing a strong start of the year. This was mainly due to the significant pricing contribution in the tobacco business, which outweighed the impact of deteriorating product mix and higher input cost. On a reported basis, revenue increased 14.4% year-on-year, driven by the top line growth in the tobacco and pharmaceutical businesses, strengthened by the favorable exchange rates in the tobacco business due to the depreciation of the Japanese yen.
Both AOP and operating profit grew at double-digit rate, supported by all businesses and the depreciation of the Japanese yen. Profit increased as operating profit growth and lower corporate income tax offset the negative impact of financing costs. The deterioration in financing costs was primarily due to the impact of changes in the applied exchange rate in Iran. Although the results on the reported basis were strong in the first quarter due to the continued depreciation of the Japanese yen, considering the exchange rate trends last year, we expect that the FX impact associated with the appreciation of the Japanese yen and weaker local currencies will turn to headwinds as we progress towards the end of fiscal year 2023. In addition, we expect the marketing investment related to the geo expansion of Ploom X to rise as we increase the number of launches in the second half.
Next, I will explain the performance of each business. Please refer to slide four for the volume performance of the tobacco business. Total volume, including both combustibles and RRP, increased 1.3% year-on-year. Strong performance in combustibles, particularly in the EMA cluster, as well as continued RRP volume growth in Japan, exceeded the impact of lower industry volume in several key markets, notably in the United Kingdom. Specifically, in Turkey, our performance was driven by a higher industry volume resulting from a favorable comparison against the first quarter of 2022, when there was an industry decline due to inventory accumulation following a price increase. In addition, volume growth in global travel retail due to a gradual rebound in the numbers of travelers and positive momentum in emerging markets exceeded the industry volume contraction in markets such as the United Kingdom.
In Japan, combustibles volume increased year-on-year due to segment share gains, especially in the value segment, offsetting the industry volume contraction and resulting in a strong start for the year. RRP volume increased by 3.0% year-on-year, driven by market share gains in the Japanese HTS segment. Moving on to the financial performance in the tobacco business, please see slide 5. Core revenue and AOP at constant currency in the first quarter resulted in a year-on-year increase of 6.3% and 4.6% respectively, driven by pricing contribution in a number of markets, notably in Russia and the United Kingdom. As shown in the graph, the volume variance in AOP was negative. This is due to a deterioration of the market mix from lower volume in higher margin markets, such as the United Kingdom and other markets.
In addition, the negative product mix, due to continued down trading in Japan and other markets, partially offset the pricing effect. Lastly, our initiatives to increase the cost competitiveness in the tobacco business and supply chain efficiencies are contributing to our cost base improvement. However, higher input costs related to increased raw materials, logistics, and utility costs outweighed these cost-saving contributions. We expect higher input costs to continue throughout fiscal 2023. Regarding Russia, while the operating environment remains very challenging, we continue to manufacture and distribute our products in compliance with applicable regulations and international sanctions. There have been no changes in our stance. We will continue to take all necessary decisions in response to changes in circumstances and in accordance with the management principles guided by our 4S model. On the next slide, I will explain the trends in the 3 clusters and in our 9 major markets.
Please refer to slide 6. Market share in our key markets has remained solid with year-on-year growth in Italy, Japan, the Philippines, Russia and Taiwan. Asia. In this cluster, the negative price mix variance resulted from the lapping of Japan's pricing benefits in 2022, an ongoing down trading trend. These outweighed the positive total volume variance, mainly in Japan. Core revenue on a reported basis increased slightly year-on-year, fueled by favorable FX impact, and AOP was almost flat. In Japan, continued Ploom X growth, as well as strong MEVIUS E-Series and Camel Craft capturing the down trading trend led to an increase in both HTS and combustibles market share. I will explain the performance of Ploom X in the Japanese market in more details on the following slide. Western Europe.
Strong pricing implemented last year, and also during the first quarter in each market exceeded the total volume decrease year-on-year due to industry volume contraction, mainly in the United Kingdom. As a result, core revenue and AOP for this cluster increased both at constant FX and on a reported basis, the latter supported by favorable currency movements. In the U.K., combustibles volume continued to decrease in line with the large total industry volume contraction following several price increases since the second half of 2021 and the lapping of the COVID trends. This negative volume was more than offset by the robust pricing variance in this market. Last is EMEA. As mentioned earlier, total volume increased in Turkey, benefiting from a favorable comparison driven by trade inventory adjustment, which took place last year, and the continued recovery in the number of travelers in global travel retail.
Strong pricing variance offset the impact of rising supply chain costs. Strengthened by the positive impact of foreign exchange rates, the cluster's core revenues and AOP both increased significantly year-on-year. Slide 7 explains the progress of Ploom X in Japan. In the first quarter, RRP represented approximately 37% of total tobacco industry volume in Japan. This is slightly higher than anticipated in our initial forecast, mainly due to active new HTS product launches and sales promotions by both JT and competitors. I'd like to point out that our new product launches have, to an extent, contributed to an increase in inventory in the first quarter. Ploom X shares within the HTS segment continued to grow, reaching 9.3% in the first quarter, as shown on the slide.
The success of the device retail price reduction implemented at the end of November last year resulted in higher year-on-year devices sales volume. In March this year, we renewed our MEVIUS brand refill sticks and launched a new high-quality product at a more affordable price. While still early days for the new MEVIUS consumables, these initiatives have contributed to Ploom X continued share gains. Share growth includes the impact of inventory enhancement after the new launch that I have just mentioned. The current offtake base share continues to show steady performance driven by active sales promotions. We continue to strive to expand and retain our consumers by leveraging both MEVIUS and Camel consumables. Next, I'll explain the progress of Ploom X outside of Japan. Please turn to slide eight.
As announced in February, we have initiated a geographic expansion of Ploom X with over 10 markets planned during 2023, and more to come in 2024, mainly in Europe. Following the launch in Japan and the U.K., we have launched Ploom X in Italy and Lithuania in April, with plans to launch in Portugal in mid-May. As explained previously, we leverage the knowledge we have gained in Japan and the U.K. to expand in the HTS segment and acquire and retain our consumers. During our upcoming Tobacco Investor Conference on Monday, May eighth, we'll provide additional details regarding our geo expansion plan. I strongly invite you to register to this event. Contact the IR team if you have not received the registration link.
In the U.K., which was launched in October last year, the industry volume of HTS segment is still limited. It continues to be sold only in the Greater London area. As a result, I do not have significant data to share in terms of sales volume and market share. However, I can relay that we are receiving positive consumer feedback regarding the amount of vape, the heating speed of the device, the usable hours per stick or price positioning. For Italy, where Ploom X was launched April, the HTS segment is relatively large and represented approximately 16% in 2022. We expect higher margins due to lower tax burden of HTS compared to combustibles. We consider it is important to improve our total tobacco market share and profitability. We started sales in several provinces, including Milan, in April. We will gradually expand sales in other regions.
Next, let me introduce Lithuania, where we launched Ploom X late April. In this market, the HTS segment represented approximately 27% of the total tobacco industry in 2022, and the consumers are well aware of HTS. Like Italy, HTS has a lower tax burden compared to combustibles, potentially resulting in higher margins. We started sales in April in Vilnius, and we will gradually expand sales in other cities. Finally, let me update the supply situation of semiconductor components related to the procurement of devices. Although it is difficult to predict supply and demand trend in the entire supply chain for semiconductor components in general, we have seen an improvement in the supply and demand for semiconductor components since the second half of last year, as we have explained in February this year.
At this point, concerns regarding device procurement have generally been resolved, and we have secured the necessary volume of semiconductors for the expansion planned this year and beyond. Slide 9 details the results of our pharmaceutical and processed food businesses. First, the pharmaceutical business. Revenue grew year-on-year due to one-time income from the licensing of patented JT compounds and the sales increases in the areas of skin diseases and allergens at our consolidated subsidiary, Torii Pharmaceutical. AOP increased year-on-year as our revenue growth exceeded increase in R&D expenses. Moving to the processed food business, revenue was almost flat year-on-year due to price revisions implemented last year, as well as recovery of sales in the food service industry, specifically in the frozen and avian food segment, offsetting the impact of our revenue loss resulting from the transfer of the bakery business last year.
AOP increased significantly year-on-year as the price revisions, as well as the top-line growth, along with the recovery of sales to the food service industry, more than offset the impact of increased raw materials. Slide 10 will be the last slide. To summarize, we have delivered solid results in the first quarter, building on the positive momentum across its businesses. Robust pricing in the tobacco business continued to drive the strong performance of the group and the market share gains in several markets.
We were able to offset the impact of input cost increases. The pharmaceutical and processed food business also reported increased profit, supported the Group's profit growth. On the other hand, the foreign exchange rate are volatile and the potential risk remains, including the concerns over inflation and recession, as well as possible tax increases and tighter regulation in selected countries. We continue to closely monitor the impact on our business and the financial performance. Forecast revision, if any, will be announced along with the second quarter financial results or later. As mentioned, our Tobacco Investor Conference will be held online on Monday, May 8, next week. We give presentation on the tobacco business growth strategy and RRP efforts with JT International executives as speakers. Q&A session will follow. We do hope you will take part in this meeting. Thank you very much for your attention.
Thank you, Mr. Kato. I'd like to start the Q&A session. Let me introduce you the speaker who will answer your questions today, Nobuya Kato, CFO of the JT Group, and Koji Shimayoshi, JTI Deputy CEO. I will show you how to ask questions. We are afraid we don't accept questions in this English line. If you have any question, please send an email to jt.ir@jt.com. We will introduce your question accordingly. Thank you for your understanding. Thank you for waiting. The first question comes from Mizuho Securities, Mr. Saji.
Thank you for this opportunity. I only have one question about the Japanese market. Combustibles and HTS are the areas that I would like to ask questions. If you could give me a short comment on the both.
Talking about the market, I suppose it has declined by 3% or so, but JT managed to grow at the 2.6%. You managed to grow your businesses. In the downward trend, Camel Craft performed better. I suppose the traffic of the people and some contribution may have come from inbound tourists as well, perhaps. This positive of 2.6% of growth was quite outstanding. Is there any kind of backdrop to this? HTS, it is quite simple. PMI, in fact, has been growing their share in HTS in Japan. Now that your share has expanded further, inclusive of BAT, I suppose there may have been some changes in the share breakdown between and among these three group companies. I wonder how this would trend going forward.
Any kind of changes that is occurring as to the market share here in Japan in so far as HTS is concerned, do you think that you can continue to expand your share? Thank you very much.
With regard to combustibles, while the market or the industry volume is declining, why were we able to grow? Also with regard to HTS, why are we successful in growing our shares, and can we continue this trend going forward? Shimayoshi is going to answer to your question.
This is Shimayoshi from JTI. Mr. Saji, thank you for your question. As to the first part of your question, combustible in Japan, while, of course, the industry volume is declining, we have managed to enjoy the growth. Is it sustainable or not?
HTS, and especially in light of the competitive landscape. The combustibles, the Japanese market, in fact that downtrend trading, in fact, has been proceeding. Such a backdrop, Camel Craft and MEVIUS E-Series. We were relatively weaker in this value segment, but for sure we have been winning our share in this category. That is at the backdrop to this growth. 2022, from the second quarter, if we were to look back from then, the segment share-wise, it has been doubled. We did manage to double the share. That I think is supportive of this positive trend. Inclusive of inbound tourists, whether it is sustainable or not, from a qualitative perspective, yes may be the answer.
you know, during the Golden Week, we see a lot of traffic of the people on the street, especially the Japanese consumers and also the Chinese tourists as well as the Taiwanese tourists. They have been making a visit to Japan. I don't think we have reached the extent of measuring this in a quantitative manner. Whether this is sustainable or not, I suppose, is your question. At this value segment, value segment for sure is growing. We want to make sure that we can continue to grow our share in the segment. With regard to the profit, you know, what would happen to the profit, it is yet to be known.
With regard to HTS, as to the actual business performance of the competition, we are not in a position to be making a comment because after all, the data sourceThe competition may vary in accordance with the source of information. If I may just make well, a comment. Our Ploom X, the device price was reduced. Also the refill price was also reduced for MEVIUS. Also MEVIUS, we have reinforced our effort in the blending, therefore between tobaccos and the quantity of vape and vape volume feature. We have brought about some changes, and that is giving us a sure sign of a positive outcome.
Talking about the offtake, in other words, on a retail basis, according to our internal information source, 10.7, 10.5% of growth, I think has been enjoyed. We really want to continue this momentum going forward. That is all for myself.
Thank you very much. There's one thing that I want to confirm with you. According to the share source, as a result, I think you have been winning the share from those competition. Is that correct?
Well, our Ploom X... There are three businesses or four businesses. Our combustibles, source of business and competition's HTS and competition's combustibles. More specifically, there are two major competition, but from whom are we acquiring our shares?
As for ourselves, you know, allow us to refrain from making any comments because we cannot be sure of where we're winning our shares from. Like, in the case of BAT's performance or any others, we're not in a position to be making any further comments about the competition.
Okay. Understood. Thank you so much.
Mr. Saji, thank you for your question.
Next, we'd like to introduce next question from Nomura Securities. Mr. Fujiwara, please.
Thank you. I'm Fujiwara. Do you hear me? Yes? Thank you. I have one question. For the first quarter, looking at the results at the constant FX, I have seen the figures. For the tobacco business, you had a very good start off, and in the second half you're going to have the product expansion with the Ploom X. Looking at the full year, in each cluster, what is a feel and also how it going to play out compared with our estimate? That's my question. Thank you.
That question was by cluster compared with the plan, how we're going to play out, and Mr. Shimayoshi will address that question.
Thank you, Mr. Fujiwara, for your question. For the full year forecast, I think there are two key drivers, the volume and also unit price. In terms of the volume, the last year's momentum will be carried forward this year. Also there was investment adjustment, inventory adjustment, so that is a part of the strength. Then looking further down the road, I think there are some factors for the sensitivity. Japan, the Camel Craft was launched in June 2022, and that impact will be given for the full year for the volume increase. We're going to see the peak out. Also, Turkey will give the big impact for the volume. That is currently booming, but after the tax increase and pricing, there might be some decline for the volume that is estimated.
Q2 and onward, in Asia, how the consumers will behave needs to be monitored. For example, in China and Taiwanese, our customers needs to be monitored. The duty-free sales will be increasing, and how that will impact on the domestic demand in each country. That is the factor we need to monitor closely and have the management. Also for the unit price, I think our pricing has been generally successful, but in part of the market there is the, our price competition with the pricing. There are some market that which we were not able to have the pricing as we have planned. In the Q2 onward, we need to look at the competitions and then we need to work harder to gain the pricing as we have anticipated.
The Q1 start off was very good. There are some sensitivities we are aware of, and we'd like to have the safe landing. That's all from me. Thanks.
Follow-up question. For the unit price compared with the anticipated one, you said that there was some lagging behind areas. Would you specify the area?
Well, we are having the competition in some markets. When we specify one market and when I say it was not successful, actually that is misleading. In some market, in the mid, price-
Our product that our competition didn't have the pricing. In Russia, with the tax hike, we had the pricing. That has not penetrated for all SKUs because we are monitoring the other competitions, how they behave. We are fine-tuning our pricing looking at the competitions. Therefore, that is the case in Russia and the Philippines and Italy, we need to have the close watch. These are the key market. In these areas, our pricing is not as high as 100% that we have anticipated. That's all from me. Thanks.
Thank you very much.
Mr. Fujiwara, thank you very much. Let me introduce the next person. Morita, Mr. Morita from Daiwa Securities, please.
I am Mr. Morita from Daiwa Securities. Thank you for the opportunity. I would like to ask the question about the financing cost.
In the first quarter, I believe that it was attributable to the situation in Turkey. While the interest rate is hiking, what kind of risk are you foreseeing with the interest rate hiking? If we were to exclude the impact that comes from Turkey, what is the impact in a quantitative manner for the full year? If you could be so kind enough to explain about this financing cost. Recently, you have been making improvement on the balance sheet, but inclusive of D/E ratio, referring to the balance sheet, if you could be so kind enough to explain the current conditions of the balance sheet.
The financing cost deterioration and how do we foresee how it unfolds, and also at the same time, the balance sheet situation, conditions. Kato is going to answer.
This is Kato speaking. Mr. Morita, thank you for your question. At the outset, in response to your question, it is true that the deterioration of financing cost is not attributable to Turkey, but Iran. I'm sorry about that.
No, that's okay.
In Iran, why the deterioration has taken place? Let me explain. First of all, Iran, whereas before from the government, with regard to the raw material, the imported raw material in the payment, we needed to procure the foreign currency, which is allocated by the government of Iran. Also there is an official fixed rate that is designated by the government of Iran.
Since the beginning of this year, this allocation, the quantity, and also at the time of allocation, the rate, there has been some changes that was brought about. Which was, which resulted in local currency depreciation, the new rate was. That had affected the payment of the raw material imports, and which we had to, of course, calculate on the basis of this official rate. What does it do to the financing cost? The raw material, of course, has to be imported on a foreign currency, basically euro-denominated basis. This euro-denominated price, of course, to the outstanding balance of the payables on a local currency basis. Unfortunately, it works to be negative on the financing cost. That, in fact, was a major impact in the first quarter that we had experienced.
That was for Iran. Overall, the financing cost, the loss that had incurred in some other locations because of the hike in the interest rate, I think was the question. There are some positive factors as well that I need to explain. While the rate continues to rise, but of course the cash assigned in balance, the interest rate that we can earn on the balance of the cash, of course, is a positive factor that we need to take into account. On the other hand, our debt, in fact, is the majority of it, well, which in fact is on a fixed on the long term. Therefore, the rate is fixed for the long term. The recent hike in the interest rate has not impacted us very much, to be honest.
Having said that, though, taking that of course into account still, the long-term fixed rate in fact has been the financial strategy that we have been kind of pursuing and adopting for this, for the reason that you have asked the question for. Talking about the D/E ratio of the balance sheet, how are we approaching the D/E ratio? What is our idea to it? At the moment, interest bear loans on a net basis, the net debt, in other words, in fact, has come down quite a bit. As for the cash, we have an abundance in terms of the cash on hand. As we look back at the past several years also because of COVID pandemic and also, the macroeconomic conditions, in fact, had remained to be pretty volatile.
Against such a backdrop to that, we needed to have a strong financial standing because we thought that would prove to be.
Something that is important to the overall business conditions. In some cases, that would give us some agility in responding to whatever the changes that may take place in the macroeconomic conditions. Also the investment that was that had proven to be attractive, we would be able to have flexibility as well as agility. From that perspective, the balance sheet, we really wanted to solidify the strong foundation of our financial standing. That's how we have been managing the balance sheet.
Well, with regard to the interest payment, that's about JPY 27 billion-28 billion. Can I understand that it would be to that size going forward as well? May I take it?
Well, the interest payment, I don't think it would change very much over the years going forward.
As to the balance sheet. The current macroeconomic condition is volatile, so therefore you would like to remain to be pretty conservative, and there would be no kind of major changes that are made to the balance sheet. That is true. We do not intend to bring about major changes to our balance sheet management going forward.
Thank you very much. Understood. Thank you.
Mr. Morita, thank you for your question.
I'd like to introduce next question. Tsunoyama Mitsubishi UFJ Morgan Stanley Securities.
I'm Tsunoyama of Mitsubishi UFJ Morgan Stanley Securities. With regard to the variance for the profit for this year, that the JPY 20.3 billion.
For the others, we may not be able to give you the full breakdown, and presumably part of them is coming from the supply chain or the cost reductions, or the RRP contribution will be included. Out of that, JPY 23 billion, would you give us some colors for that number? Also for three years, you're going to have the, JPY 300 billion investment for the... What was the progress in the first quarter of this year? Would you give us some number for that?
For the others, JPY 20.3 billion, the breakdown, and also RRP, our investment, the progress for this JPY 300 billion. Mr. Shimayoshi will address to that question.
Thank you, Mr. Tsunoyama. For the first question, for the others of a JPY 20.3 billion, what is a major factor out of that, and flavor or color for that? For primary, the inflation and the supply chain, and our production cost worsened. That has the biggest factor. Also for the Ploom X expansion, we increased the investment. That is a part of that. That is related to the next question. In this year, Italy and business, we are expanding our business. Year on year, that is the growth factor. Also in each country, the inflation is proceeding, so the labor cost or the wages have been up. In line with the inflation, we need to increase the salary. So these are the factors included for the worsening. For the JTI and in Japan, we have inserted the transformation initiatives.
For the manufacturing cost, we have been improving the efficiency. Putting it all together, we have come to the number of JPY 20.3 billion as a net one. With regard to the progress for the investment of JPY 300 billion for upcoming 3 years for the RRP, that in the ballpark estimate, about 70% goes to the marketing. The remnant for the ongoing basis, R&D and the CapEx, is partially included. For R&D, that will be constantly increasing. For the marketing, that's up to the market we are deploying. We're going to have the budget for the expansion of the market. Currently, we have only 2 markets. Vis-à-vis the JPY 300 billion, this is just a starting point. Embryonic stage, I would say. That's all from me. Thanks.
Follow-up question. For the JPY 20.3 billion, compared with for full year plan, how is that should be compared with that? I might be have some misunderstanding. For the RRP, for the volume from January to March, it was about 3% growth year-on-year. It was almost unchanged. In Japan, there was increase by the 300 million sticks. There might be the decline in other areas. Is that right? Is there any other factors for us to consider?
With regard to the cost, whether that is in line or not, for the Q1, compared with our initial forecast, slightly it is easing. For the full year, we made a plan at the end of the year, previous year, and at that time there was a energy crisis are happening in Europe, and we didn't have the severity. Because of the warm winter, the energy cost situation was not as bad as expected. The cost pressure for the energy cost was kind of mild compared with our initial plan. Also for the RRP, for example, in Japan, Ploom X is booming and Infused for the Ploom TECH, so to speak. Since we have concentrated in HTS investment, so these areas have been rather weakening.
That is not our future we commented so often, but we had the launch of Ploom S in Russia before. After that, there was the war, we suspended the launch of the Ploom X. The Ploom S is for the existing customers who are still using Ploom S, is being supplied. Since we don't have the additional supply, the volume itself is declining. That is the result of the net basis.
Thank you very much. Understood.
Mr. Tsunoyama, thank you very much. Let me introduce the next person. From Morgan Stanley MUFG Securities, Ms. Miyake, please.
Thank you for the opportunity. I am Miyake from Morgan Stanley MUFG Securities. I would like to ask the question about the outlook going forward.
I know there are numbers of volatility that you may have to take into account. Therefore, you may have to scrutinize various different aspects of the businesses. In your business, which area do you foresee the biggest risk that you may experience in the future? Maybe Russia, I wonder. This is my personal opinion. As to the business continuity in Russia, I suppose, the volume on hand, I think it has been increasing. I wonder, you know, what is in your mind at this point in time.
Your question, Ms. Miyake, what is the largest risk that you foresee in the businesses, and also the outlook of the business in Russia? Mr. Kato is going to answer to the question.
Ms. Miyake, thank you for the question. In terms of the latent risk, at the time of my presentation, I may have shared my thought to some extent. It's not any country in specific, but in each of the markets, there could be, you know, the regulation becoming stricter or increasing tax or recession, of course. These could be potential risk in various different markets of the world. That is what we think at this point in time. Other than the businesses, the overall, the Forex market remains to be pretty volatile. Just referring back to the first quarter, to update the entire forecast for the whole year, like JPY 130, has now go up, kind of changed JPY 136, JPY 137.
In any case, depreciation of the yen, of course, works out to be positive for us. Of course, it could reverse any time. From that perspective, I think the volatility is likely to persist. Volatility remains to be high. Of course, considering that, so far as this fiscal period is concerned for the full year. It hasn't impacted us to the extent of revising the full year forecast. Of course, if that proves to be necessary, we would do so accordingly. As to the business continuity, in Russia, as for Russia, although we have been sharing our idea in the past, of course, there has been some economic sanctions that has been imposed on Russia.
We have, of course, have been doing our best in complying to those different situations and regulations. We have been, of course, responding to any changes that may occur in continuing our businesses in Russia. I think we have shared with you at the time of the last briefing session, so far as the sanction now is concerned, and if so far as we can respond to the sanction, we think that we can still be continuing with our business in Russia. That's what we have shared at the time of the beginning of this fiscal period, and what that is, this is exactly what we foresee for the full year as well. There's one thing that I need to add, and that may not bring about major impact to our financials.
What has happened quite recently, this internal strife in Sudan. Khartoum, the capital, what is exactly happening is not to be overlooked for sure. That may perhaps give some impact to the businesses. The production as well as distribution of products, in fact, has been suspended for this reason. Whether how this would unfold going forward is yet to be seen. Although we do not foresee any kind of major impact given to the financials, but that we cannot deny the fact that there could be some even as, you know, slight impact that may perhaps be given to us. Anything to be added from Mr. Shimayoshi?
This is Mr. Shimayoshi speaking. As to the volatility that surrounds us so far as the Q1 is concerned, the first quarter is concerned, over the past three years, you know, COVID pandemic and war in Ukraine, Russia, you know, I must admit that we did panic a bit, you know, internally. The volatility, of course, is persisting. It is no longer panicking, but rather we are trying to quietly and calmly, you know, kind of control those risks and geopolitical risk or pandemic. I think it has become somewhat more manageable as compared to the last three years.
I think we have now, I think the things have become manageable that it has allowed us to concentrate our effort on the business, businesses, the day-to-day businesses. As to the continuity of the business in Russia, by item, by raw materials, you know, I think we have said 1-6 months, but so far as the inventory is concerned, currently, you know, 2-6 months. The inventory, in fact, we did manage to build up a little more than before. Therefore, the things have not changed very much from the time that we have shared our view back in February. Thank you very much for that. One thing that I want to confirm with you, having heard your response.
With regard to the pricing, dependent on the market, you had shared that it had not been, the action had not been taken just as you had planned in some of the markets. The pricing that you have not taken any kind of pricing actions in the first quarter that you had not planned initially, may I take it? Ms. Miyake? Terribly sorry for this, but we cannot. We have to refrain from giving you much of the details. There are some markets where we were able to take more pricing actions than we had initially planned, because of the fact that we needed to counteract against the hike in the tax. Of course, we carry through this pricing action in light of the impact that could be given to the volume, though.
There are some other markets, which I have mentioned that we were not able to kind of smoothly conduct this pricing action. There was some that was more than we had initially anticipated. Which means that overall, still you are short of your initial target. Is that right? Yes. From a profit generation perspective, you know, pricing for sure is one of the important driver. Therefore, you know, from a uncertainty, to be honest, you know, if we can be successful in the pricing actions, we would be happier. That's what it is. Thank you very much. Ms. Miyake, thank you for your question.
Next question from SMBC Nikko Securities. Ms. Takagi, please.
Hello, this is Takagi. Do you hear me? Thank you. I'd like to ask about the cost increase in supply chain. In this year for FY 2023, cost increase will be rather material, especially in the first half of the year. Because of the rather slow speed of last year, there will be the accelerated cost increase. That there are many NTRM or the leaf tobacco and others. What is your current forecast when you have our first half comparison? Do you think that will be slowed down in the second half? Would you give us the more color for that?
For the supply chain cost increase, for this year forecast, our Mr. Shimayoshi will address.
Thank you, Mr. Takagi. I'm Shimayoshi. Our forecast for the cost increase, including this year, how we'll have the projection is rather difficult to describe. As of today, in our forecast, the cost increase is of course affected by the inflation. I think this year will be the peak year-on-year basis that increase will be the peak for this year. In the longer view projection, from 2023 to 2024, I wouldn't say the half of this year, but about one third of the cost increase factor will still remain in the following year. In the first quarter, it was more moderate than our estimate as we presented. In future that we need to look at the supply demand of energy and also the food, the raw material matters to us.
These areas are the volatile factors, and this volatility would still continue. As of today, we cannot specify that how much is the cost increase factor and how long that's gonna be continue. At this moment, we think this year will be the peak and the next year it will be moderating. That's our view.
Thank you very much, Mr. Shimayoshi. When you said that one-third is remaining next year, is that about energy or the food? What it's about?
When you look at the inflation rate in any countries, the inflation will be the peaking this year. That covers the raw materials and energy cost and the labor cost, all inclusive. For next year, compared with this year, next year will be about one-third. That is a rather big-picture comment. Quarter-on-quarter that we'd like to give you the more detail.
How about the leaf tobacco, the refill? The leaf tobacco. Would you give us any comment for the cost?
Last year in autumn, after the crop in fall last year, there was a cost increase. We have our inventory of about 1 year and year and half. That will have the impact for this year. That is how we have the inventory. For this year, the procurement for this year, starting from the summer or the autumn time this year, based on the latest forecast, the labor cost and the fuel cost and also the feed cost continue to rise. The raw material cost will continue to rise. That incremental trend will continue.
After the autumn, how we're going to see the pricing, we need to see that through for the impact on the next following year. Thank you very much. Supply chain cost increase, you are going to take the pricing based on that. If that moderates, then, that will affect inventory. It might be rather premature to give us the forecast. Yes. We need to look at the market conditions and also that we are making the cost reduction effort. That impact will be felt this year, next year. Thank you very much, Mr. Shimayoshi. That's all from me.
With this, now we'd like to conclude the meeting. Thank you so much for your participation, and please make sure that you disconnect.